From Crisis to Resolution: Mastering Real Estate Insolvency Challenges in India

We have seen every kind of real estate situation imaginable from third-generation developers watching their family history disappear in court, to new entrepreneurs realising that construction delays and angry homebuyers can lead straight to bankruptcy. Real estate insolvency makes up nearly 30% of all corporate insolvency cases under the IBC law. Yet, most developers walk into this danger zone completely unprepared for what happens when the money runs out and lenders start demanding repayment.

Let’s look at a recent example involving a Pune-based developer with three projects worth ₹400 crores. Even with a strong brand and 25 years of experience, they faced an insolvency petition in just 18 months. The causes were typical: delays in getting government approvals, construction costs jumping from ₹3,500 to ₹5,200 per sq ft, and the inability to charge buyers more. By the time we stepped in to manage the real estate insolvency process, they had 280 upset homebuyers, a debt of ₹180 crores, and assets frozen by the banks.

Through a smart restructuring plan, negotiating with lenders, managing homebuyer claims, and bringing in a new investor with fresh money, all three projects were finished in 14 months. The original owner lost control of the company but saved his reputation and walked away with ₹22 crores, avoiding personal financial ruin and potential legal trouble.

On the other hand, we have seen developers ignore early warning signs, believing it is just a “short-term cash problem,” until they are stuck in real estate insolvency proceedings with no power to negotiate. The difference between surviving and losing everything isn’t luck. It is about understanding the specific risks of this industry and taking action before you lose control.

The Real Estate Industry: Understanding Structural Challenges

Real estate in India is a capital-intensive sector where financial resilience is constantly tested by unique structural dynamics.

1. Long Gestation Periods with Front-Loaded Risk Unlike most businesses, real estate projects take 3-5 years from land acquisition to completion. You’re committing capital today based on assumptions about market conditions, buyer appetite, and regulatory environment 4 years from now. Any miscalculation regarding interest rates or demand shifts compounds over years.

2. Regulatory Complexity and Approval Bottlenecks RERA, environmental clearances, and fire NOCs are critical milestones. We’ve seen projects stuck for 18 months waiting for a single environmental clearance, bleeding ₹15 lakhs per month in carrying costs while revenue is zero.

3. Leverage-Heavy Business Model Real estate runs on debt. Land, construction, and inventory are all financed. With average LTVs of 60-70% and interest costs at 11-13%, the margin for error is razor-thin. The moment debt service exceeds pre-sales collections, financial stress begins.

4. Homebuyer Litigation Under RERA RERA has empowered homebuyers as financial creditors with direct recourse to NCLT. A developer with 50 delayed flats isn’t just facing customer complaints; they are facing potential insolvency petitions and significant liability exposure.

5. Asset-Heavy but Illiquid You may hold ₹500 crores worth of land and inventory, but you can’t convert that to cash in 60 days to pay creditors. Distressed real estate assets are notoriously illiquid, making lenders aggressive in enforcement actions.

The Complexity of Real Estate Insolvency

1. The Multiple Creditor Maze

Real estate cases involve Financial Creditors (Banks), Operational Creditors (Contractors), and Homebuyer Creditors. Each group has different priorities: banks want recovery, homebuyers want completed flats, and contractors want immediate payment. Aligning these conflicting interests to get the required 66% CoC approval is difficult.

2. Asset Valuation Chaos

Valuing a half-built project is chaotic.

• Fair Value: Assumes completion and market demand (Highest Value).
• Liquidation Value: Forced sale scenario (30-40% of fair value).
• Going Concern Value: Dependent on funding availability. We have seen valuers differ significantly on the same asset, causing massive disputes in the CoC regarding the viability of resolution plans.

3. Regulatory Clearances in Bureaucracy

Government departments do not expedite approvals because a project is under CIRP. We’ve seen approved resolution plans stalled for years waiting for environmental clearances, trapping investors and creditors alike.

4. Homebuyer Expectations vs. Economic Realities

Homebuyers often vote emotionally, not economically. They may reject a plan offering 80% recovery because they demand 100%, unwittingly pushing the project into liquidation where they might recover only 40%. Managing these expectations requires empathy and hard truths about economic realities.

5. Time Decay

Every month of delay destroys value through physical deterioration, market erosion, cost escalation, and carrying costs. While the IBC mandates 330 days for resolution, real estate averages significantly longer. Speed is literally money in insolvency.

A Strategic Framework for Resolution

To rescue value from distress, we deploy a comprehensive financial, legal, and operational framework:

1. Rapid Forensic Assessment & Stabilisation The moment we step in, we conduct a “Financial Forensic” deep dive to understand liabilities and cash flow gaps. We secure critical assets to prevent unauthorised occupation and perform “Creditor Mapping” to identify leverage points distinguishing between aggressive lenders and those open to negotiation. This stabilises the project and buys crucial time.

2. Strategic Option Selection We analyse the specific viability of the project to determine the best path forward:

• Pre-CIRP Settlement: Negotiating voluntary debt restructuring or strategic asset sales to avoid courts entirely.
• Promoter-Led Resolution: Crafting plans that infuse new equity and offer creditors a better recovery than liquidation, allowing the promoter to retain control.
• Third-Party Resolution: Bringing in external investors or developers to take over execution.
• Strategic Liquidation: Bundling assets for serious buyers as a last resort.

3. Consensus Building & CoC Management The biggest hurdle is the Committee of Creditors (CoC). We manage this friction by presenting data-backed scenarios. We use detailed financial models to show homebuyers why a specific resolution plan is better than liquidation, and we demonstrate to banks that a haircut today is better than a total write-off tomorrow.

4. Operational Execution & Project Closure A legal win means nothing without a completed building. Our framework extends to the ground level. We oversee the implementation of the resolution plan, ensuring funds are strictly utilised for construction milestones. We manage the “Project Completion” phase re-engaging contractors and obtaining Occupation Certificates and handle the final exit.

5. Personal Guarantor Advisory Most promoters sign personal guarantees. We help them quantify liability, negotiate limits on guarantee invocation in exchange for cooperation, and guide them through personal insolvency processes if necessary to achieve a clean break.

Determinants of Survival

What separates successful turnarounds from total disasters?

1. Early Intervention

The 90-day window between realising you cannot meet obligations and creditors filing petitions is your leverage period. Once CIRP starts, you lose control. Smart developers engage advisors immediately to negotiate and monetise assets before they are frozen.

2. Homebuyer Management

Homebuyers are victims, not just creditors. The wrong approach is treating them as adversaries. The right approach is treating them as partners in resolution. We once secured 92% homebuyer votes for a plan by involving them in the process, delivering flats 14 months later versus a 4-year liquidation timeline.

3. Realism About Project Viability

Promoters often cling to unviable projects due to emotional attachment. Winners face reality: if revival isn’t viable, they cooperate with resolution to protect personal wealth and reputation. Losers fight reality, dragging out the process until liquidation destroys all value.

4. Financial Engineering vs. Wishful Thinking

Creditors back strategy backed by numbers, not hope. A “wishful thinking” plan ignores regulatory reality and market rates. An “engineered plan” features accurate timelines, conservative cost estimates, and immediate cash infusion, gaining creditor approval.

5. Resolution Professional Partnership

Smart promoters view the Resolution Professional (RP) as a partner, sharing operational knowledge to support asset marketing. Foolish promoters create obstacles and withhold information, leading the RP to recommend liquidation.

Final Advice: Confronting the Challenge

Real estate insolvency is a business problem with legal dimensions. Too many developers approach it as a courtroom battle when it’s actually a financial engineering challenge.

• Monitor Financial Health: Track debt service coverage ratios and act the moment red flags appear.
• Build Relationships: Maintain lender trust before distress hits.
• Seek Advice Early: Engage specialists who act as turnaround experts, not undertakers.
• Prioritise Completion: Your goal is to finish projects and satisfy stakeholders, not just win arguments.
• Adapt Strategy: The market has changed; your strategy must adapt to survive.

At Solvencis, we promise clear-eyed assessment and relentless execution. Our goal is to maximise creditor value while helping viable projects cross the finish line. If your project faces distress, let’s talk. The earlier you engage us, the more options you have.

About Solvencis

Solvencis is a hybrid consulting and legal services firm that partners with real estate developers to translate market vision into executable outcomes. We combine Go-To-Market strategy, real estate marketing advisory, and specialised legal services to support compliant, capital-efficient, and high-velocity project launches.

Solvencis delivers specialised Hybrid Consulting Solutions across Management, Finance, Regulatory, and Consulting domains. Our core services include M&A Advisory, Go-to-Market Strategy, Regulatory Compliance, and Operational Restructuring, positioning us as a strategic partner for businesses navigating complex, highly regulated markets. Through integrated legal diligence, RERA advisory, and transaction support, we help developers protect value, maintain credibility, and achieve sustainable growth.

For more information Email: inquiry@solvencis.com